Retail investors have become a major force in the financial markets.
Key takeaways
Investors’ sophistication and better access to tools are prompting potential regulatory reform.
Brokerages must be aware of and manage emerging risks as they integrate retail investors.
Since the introduction of commission-free trading in 2019, retail investors have become a major force in the financial markets. The combination of fee-free trading and the increased amount of downtime for retail investors during the 2020 pandemic solidified retail investors’ relevance and importance to the markets.
Even more recently, in mid-October 2025, during one of the latest meme stock crazes, retail traders were responsible for 16% of single-stock trading volume, according to Citi—a record amount.
During the first half of 2025, retail investors put $1.3 billion per day into the markets, a 32.6% increase since the same period in 2024, according to a leading broker-dealer. Retail investor participation is undeniable, with this segment now representing 20% to 35% of daily trading volume in the U.S., the UK and South Korea, and 40% to 50% in India and China, based on World Economic Forum data. As of May, retail investors accounted for 6.4% of the average trading volume on exchange-traded funds.
Some of this volume can be attributed to the extension of global trading hours and cross-border market engagement, but the rise of retail investors as an influential and dynamic force in the markets goes beyond longer hours. Greater access to research tools and investors’ increasing sophistication are also at play.
In fact, retail investors played a key role in stabilizing market volatility during April 2025. As institutional investors sold off some of their equity investments due to the uncertainty from widespread tariffs, retail investors continued to engage with the markets and purchased equities at temporarily lower prices, an investment behavior known as “buying the dip.” This behavior highlights the differences between retail and institutional investment strategies. Broker-dealers, exchanges, clearinghouses and regulators need to understand this distinction and factor it into their future business, technology and regulatory strategies.
AI and the future of investor accreditation
The combination of better access to research tools and retail investors’ sophistication is prompting potential regulatory reform. This is evidenced by the U.S. Securities and Exchange Commission’s current proposal to expand retail access to private markets, signaling a shift away from accreditation standards solely based on access to capital.
Historically, the SEC’s rules for accredited investors allowed only certain investors to access high-risk products, based on the assumption that an increased amount of capital equates to increased sophistication and access to research to help mitigate the risk of these products. In the past, access to market intelligence tools that inform investment decisions was largely limited to institutional investors; such tools are often expensive and require teams of analysts to interpret.
TAX TREND: Tax reporting as retail investing evolves
AI-enabled trading platforms and fractional share offerings are empowering retail investors with institutional-grade access. But this shift introduces new tax reporting challenges for broker-dealers and clearinghouses, especially around cost basis tracking, wash sales and real-time transaction data.
Firms whose systems can support accurate tax documentation and investor disclosures may avoid costly errors, maintain compliance and build trust with increasingly active retail investors.
Now, the rise of artificial intelligence-powered tools is changing all that. Retail investors can analyze earnings calls from multiple companies in a matter of minutes. AI tools also give retail investors another layer of decision-making support and a sense of validation for their investment decisions, boosting confidence prior to executing the trade through their brokerage platform of choice.
Furthermore, generational trends underscore this shift. Younger cohorts such as millennials and Generation Z prefer to self-manage their financial assets. Broker-dealers must strive to offer sophisticated technology and AI tools to align with these preferences as wealth transfers from the baby-boom generation to millennials and Gen Z. To retain and engage customers amid the great wealth transfer, brokerages must ensure that their platforms deliver genuinely on the promise of AI, through both functionality and value.
Brokerage transformations to align with retail investors
As retail investors become more confident and lean toward managing their own financial portfolios, brokerages are adapting their technology offerings with AI-driven features and tools embedded directly into their brokerage platforms. Many brokerages are prioritizing user experience and practical AI features aimed at simplifying and improving the investment decision process for retail investors.
Some platforms allow investors to place trades using plain language, making trading more accessible and intuitive. Others employ real-time and concise AI-powered summaries and alerts that allow retail investors to easily digest the latest news without becoming overwhelmed. Some brokerages even offer pattern-recognition tools that highlight potential global trends aimed at assisting retail investors in generating investment ideas and sharper insights. Platforms even have AI-powered trade automation features, offering retail investors the ability to set up and run strategies using everyday language while also locking in gains or limiting losses. Overall, brokerages have been streamlining analytics, execution and transparency with the goal of helping retail investors trade more effectively.
Brokerages aren’t just catering to retail investors by upgrading their technology; they also are expanding their product offerings to be more accessible and diversified. As retail investors seek early access to growth opportunities, some companies such as Moomoo Financial, a retail investor-focused firm, have offered investment opportunities in recent initial public offerings. In the past, opportunities like this were generally limited to institutional investors. Additionally, brokerages have increasingly started offering fractional shares, allowing retail investors with limited capital to purchase high-priced stocks.
Since commission-free trading became widely adopted in 2019, brokerages have reassessed their revenue-generation strategies and shifted their revenue channels. Successful brokerages now earn revenue through payment-for-order-flow arrangements, subscription-based offerings such as advanced analytics, and margin lending. These business strategy innovations emphasize the shift in making investing more accessible while maintaining profitability.
Managing risk in an AI-driven retail brokerage model
The move to focus more on retail investors does not come without risk. Brokerages must be aware of and manage emerging risks as they integrate retail investors into their business strategies.
Action items include:
- Maintain compliance with investor protection measures, which are gaining traction and attention globally. Brokerages that offer AI tools and platforms must also provide transparent disclosure of the risks associated with these tools.
- Prioritize cybersecurity, especially for emerging risks associated with AI use. The potential for fraud and potential unauthorized account access is heightened due to AI misuse and deepfakes. Brokerages must proactively monitor for suspicious activity and offer mechanisms for retail investor protection. Failure to do so may cause reputational damage.
- Ensure technology platforms are equipped for increased retail investment activity. To prevent outages or trading disruptions during periods of high volume or volatility, brokerages must have redundant trading infrastructure. Periodic system resiliency testing is imperative to enabling brokerages to recover swiftly from potential technology failures.
The takeaway
Retail investors have solidified themselves as a new influential force in the financial markets. Their rise is reshaping how broker-dealers, clearinghouses and exchanges approach technology, product design and overall revenue strategy. Organizations that have not yet adapted to this shift risk falling behind, especially as AI tools narrow the gap between retail investors and institutional investors. Understanding retail investors and their unique behaviors and technology preferences is essential for broker-dealers, exchanges and clearinghouses as they strive to remain competitive and responsive to financial services trends.
RSM contributors
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